A year ago HMRC published a draft Order to amend provisions for payment of dependant's pensions post-A Day in the Taxation of Pension Schemes (Transitional Provisions) Order 2006 (SI 2006/572) (see Aries article). The final version has been squeezed out this week, just before Parliament rose for the summer recess.

The Taxation of Pension Schemes (Transitional Provisions) (Amendment No.2) Order 2009 (SI 2009/1989) rewords Art 34 entirely and inserts a new Art 34A, allowing some pensions to be paid to dependent children who are over the age 23 without attracting tax charges of up to 70% as unauthorised payments. It also creates a new Art. 34B, permitting the same transitional protection to continue following a block transfer (or a series of block transfers) arising from a corporate or pension scheme reorganisation.

Until 1 September 2009, when the new rules come into force (backdated to 6 April 2006), the pension tax rules require that a pension paid to a child of a deceased member of a registered pension scheme must cease when that child reaches age 23, unless the child qualifies for a dependant's pension on grounds of incapacity or the pension is covered by the transitional provisions in Art. 34. In particular, Art. 34 covers cases where the scheme rules permit this pension to be paid until the child ceases full-time education or vocational training.

With others, Aries argued that the law unfairly denied pensions to financially dependent children over 23, for example those who had given up their job to care for an elderly parent. The amendments made by this Order will give limited transitional protection to such pensions, where entitlement arose or could have arisen before 1 July 2008 (the date on which the proposal to make these amendments was made public).

To qualify, the scheme rules on 5 April 2006 must have permitted a child's pension to be paid in cases of financial dependence or mutual financial dependence, and in addition one of the following conditions must be met:

• the member's pension was in payment on or before 1 July 2008;
• the pension death benefit was in payment on 1 July 2008;
• the entitlement to the pension death benefit arose before 1 July 2008; or
• the entitlement to the pension death benefit was subject to the discretion of the trustees of the scheme and the discretion was capable of being exercised (in favour of the child having such an entitlement) so that the entitlement could have arisen before 1 July 2008.